Is it Safe to Put Your Savings in Stocks?

Never put all your savings into stocks. If there is any professional who ever tries to convince you to take all your rainy day savings and put it into the stock market, you should fire him or her immediately. Though the stock market does produce very good returns, there is inherent risk, and you should never invest more than you can afford to lose.

Personal Finances First

Before investing in the stock market, it is important to get your personal finances in order and calculate a safe sum that you're not only willing to invest, but that you can afford to live without. The stock market is filled with risks, and you should never invest money that you might need for the essentials of life. Before getting rich through the market, it's important to put your necessities first. Clothing, food, shelter and other necessities of life should always be put before any speculative investment in the stock market.

The Stock Market is Not Insured

Unlike your savings, the stock market is not insured, and you'll never know when the unexpected will occur. No one plans to lose a job or have to move in the case of a natural disaster. You should always have your personal finances in order and have enough liquid cash to be able to "weather the storm." Though the stock market has made many people rich, it's also put many families in the poorhouse. With a proper emergency stash of money aside, beginning to play the stock market becomes a possibility, but only after your obligations are covered both for you and your dependants.

During the late 1990s, the investor sentiment was that blue chip stocks were as good as money in the bank. Blue chips were yielding 4-6% dividend yields and made the saving account yield look like garbage. What many people forgot, however, was that bubbles can and do burst and what wealth you have today may be gone tomorrow. Consider if you had chosen to invest your savings at the height of the tech boom in many different companies; you would probably still be holding a large percentage loss if you bought into tech and likely about breakeven on standard bluechips nearly 10 years later. But for that zeroed return, you'd also be suffering from the effects of emotional stress on your new savings account as it dipped and grew by percentage points per day. The stock market is no place for your savings whatsoever.

You Can Still Build Savings in the Stock Market

Building your savings in the stock market is practical, however, and it is how many people start their retirement. By allocating a set dollar amount per week or month, you'll be able to slowly buy into the market and dollar cost average your investments over time. After setting aside your savings, you could allocate a certain amount, perhaps even $100 per month, to create a small retirement account.  Many mutual funds will allow investors to start with very little money if they choose to participate in a monthly reinvestment. These programs can be initiated for as little as $100 per month but many require $250 or so per month.  Nonetheless, your risk exposure is limited through the dollar cost average strategy, and you can use the stock market to grow your savings -- instead of risking the complete loss of your total savings.